Lessons to be learned, admits minister after tax breaks flop

Treasury Minister David Gauke said there were “lessons to be learned” from the dismal failure of the Government’s national insurance “holiday” for new firms taking on extra employees, which helped less than seven per cent of the businesses forecast by the Treasury.

The Yorkshire Post revealed earlier this year that the three-year scheme – which ended in September – was likely to fall far short of the target set by Ministers. Mr Gauke said that in total, 26,000 new firms benefited from the tax break over the three years it was in place – just 6.5 per cent of the 400,000 predicted by the Treasury.

“We said that 400,000 businesses and 800,000 employees would benefit from the scheme,” Mr Gauke told the Commons. “A scheme that was essentially quite targeted and required businesses to apply – even though we worked hard to make the application process as simple as possible – simply meant fewer businesses applied for it than we anticipated.

“Take-up was lower than expected, and there are lessons to be learned from that. We should be open about that.”

The scheme offered new businesses set up outside the South East a national insurance “holiday” worth up to £5,000 for up to the first ten employees they hired in their first year of business.

It was repeatedly touted by the coalition as one of their key drivers for economic growth in the regions following the 2010 election.

Labour said it warned Ministers when the flagship scheme was launched that it would be too complex to attract many small business owners, who rarely have the time or manpower to investigate tax break opportunities.

Shadow Chief Secretary to the Treasury Chris Leslie said: “Labour said at the time that the proposal was very complicated. We said (Mr Gauke) needed to be very careful with the convoluted regional design he put in place, and that the scheme would not get the anticipated take-up – which evidently it did not.

“It is sometimes invidious to say these things, but we told you so.”

Chancellor George Osborne announced in his Budget earlier this year that the regional national insurance holiday would be replaced with a far more wide-ranging tax cut, worth up to £2,000 for every firm in the country.

From next April, all businesses, charities and amateur sports clubs will receive a £2,000 “employment allowance” every year to set against their employer national insurance contributions liability.

The Bill to introduce the new measure passed its second reading in the Commons this week.

Shadow Exchequer Secretary, Shabana Mahmood said she supported the tax cut, but warned it was vital it did not suffer from similar problems to the previous scheme. “The national insurance holiday was too complicated, and the employment allowance should not suffer from the same problems,” she said. “One problem affecting take-up of the previous scheme, in addition to its complexity, was the lack of publicity. Many businesses simply did not know what was available.”

Mr Gauke insisted the new employment allowance would be far more effective because firms would receive it automatically, without a formal application.

“Businesses will receive the benefit of the employment allowance simply by using up-to-date payroll, and the introduction of real-time information makes that much easier to apply,” he said. “We believe this is a much-improved policy.”

Skipton and Ripon MP Julian Smith said the tax cut would be a huge boost to small businesses across the region.

“In my constituency, unemployment is down by about 30 per cent, and more new businesses are being created,” he said. “This is a big opportunity to give those entrepreneurs the backing they require to take on more jobs.”

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